Internal Control System
I. Basic Approach to and Status of the Internal Control System
1．Structure to Ensure that the Execution of Duties of the Lion Group’s Directors and Employees Complies with Legal Requirements and the Company's Articles of Incorporation
(1) Basic Stance
- The Lion Group Charter for Corporate Behavior and Behavioral Guidelines shall provide the platform for the Company's compliance structure.
- The President shall provide constant reinforcement regarding the basic spirit and essence of the Lion Group Charter for Corporate Behavior among directors, executive officers, corporate auditors and employees with the aim of increasing awareness and understanding of corporate ethics. Each and every member of the Lion Group shall adopt and pursue the credo that compliance underpins every facet of the Group's business activities.
(2) Compliance Structure
- The Company shall maintain a Corporate Ethics Committee chaired by the director responsible for corporate ethics, an appointee from the Board of Directors. Covering the entire Group, this committee shall formulate and implement specific initiatives to ensure greater awareness of and compliance with corporate ethics. In the event of a violation of the Lion Group Charter for Corporate Behavior or Behavioral Guidelines, if deemed necessary by the Corporate Ethics Committee, an Ethics Investigation Committee shall be established to work toward the resolution of the issue. The Ethics Evaluation Committee shall comprise specialists from outside the Group, including lawyers and certified public accountants.
- The Group shall designate a director of corporate ethics who reports to the director responsible for corporate ethics. The director of corporate ethics shall enhance and maintain the Group's compliance structure and identify and implement necessary education and training for each Group department. Complementing these measures, the Personnel Department shall conduct necessary education and training as part of level-specific education. Each department shall also formulate its own standards and manuals in line with relevant laws and regulations and operate in accordance with said rules and manuals.
- In an effort to reinforce the supervisory function of Lion’s Board of Directors, external directors who do not engage in any executive function within the Group shall be appointed to the Board.
- The Group shall maintain an Advisory Committee, comprising experts from outside the Company, to provide third-party opinions and advice on matters relating to legal compliance and management policy.
- The Group shall maintain an Auditing Office as its internal auditing division.
- Lion's Auditing Office shall conduct internal audits of Group companies.
- Lion shall dispatch corporate auditors to Group companies. Corporate auditors shall conduct audits in accordance with regulatory requirements.
- Members of the Auditing Office, the director of corporate ethics, members of the Corporate Planning Department and the Legal Department, and the corporate auditors shall maintain close communications with each other. In this manner, Lion shall promptly identify issues and problems relating to compliance and the compliance structure.
- Lion shall refer to its work regulations to determine the course of action in the event an employee contravenes any law or the Company's Articles of Incorporation. The Corporate Ethics Committee shall prepare and submit its final decision to the Board of Directors in the event a director contravenes any law or the Company's Articles of Incorporation.
- Besides items (2) a. through i. above, a “Heart Hotline” has been established to provide direct contact with the director of corporate ethics and external lawyers. This hotline forms a part of the Group's internal communications system designed to address any legal breach or matter concerning compliance. In addition, the “Quality Information Hotline” has been established. In cases of doubt about product quality, personnel responsible for product development may utilize this internal communications system to report directly to the director of the CSR Promotion Department. These hotlines shall be managed based on separately prepared guidelines.
- In the event corporate auditors uncover an issue relating to the Group's compliance structure or the management of its internal communications system (identified in item (3) c. below), a report shall be presented to the director responsible for corporate ethics and the necessary corrective measures formulated.
(3) Response in the Event of Emergency
- The Emergency Response System shall apply to any emergency relating to legal requirements and corporate social responsibility (CSR). Under the system, the director of the General Affairs Department shall report such any incident to the president, the director responsible for corporate ethics and the corporate auditors. The director of the relevant department or the Emergency Response Committee, chaired by the president, shall implement appropriate measures to resolve the situation, formulate measures to prevent recurrences and submit a report to the Executive Committee and the Board of Directors.
- The procedures outlined above in item (3) a. shall be adopted in the event a director or employee of a Group company uncovers a serious breach of any legal requirement or any significant matter relating to compliance by a Group company.
- In the event that Group companies recognize that management guidelines or instructions from Lion contravene the law or raise issues relating to compliance, the matter shall be immediately reported to the Company's president, director responsible for corporate ethics and corporate auditors. The director responsible for corporate ethics, in collaboration with the corporate auditors, shall resolve the situation and formulate measures to prevent recurrences.
2．Management Structure for Maintenance and Storage of Information Concerning the Execution of the Duties of Lion’s Directors
(1) Representative directors and executive directors shall report on the status of their own executive duties to the Board of Directors in accordance with legal requirements.
(2) The representative director shall formulate information preparation, maintenance and storage rules relating to the execution of directors' duties as a part of the Company’s information management rules.
(3) Directors shall maintain and store information pertaining to the execution of their duties in accordance with the information management rules.
(4) Directors and corporate auditors may view and copy this information at any time.
3．The Lion Group’s Rules and Other Structures Relating to the Management of Risk
(1) Response under Normal Conditions
- The director responsible for the Corporate Planning Department shall have overall responsibility for risk management for the Group. The Corporate Planning Department shall exhaustively and comprehensively manage the Group's risk.
- The Auditing Office shall audit the status of risk management for each department within the Group and report its findings to the Executive Committee and the Board of Directors.
- Under normal conditions, each department shall strive to identify its own risks and implement appropriate risk reduction measures. For management risks with the potential to significantly impact business activities, the director of the Board responsible for the relevant department shall consider appropriate risk management measures, which will be deliberated on by the Senior Executive and Executive Committees for implementation.
- To control risks associated with the environment, quality assurance, accidents and disasters, appropriate countermeasures shall be formulated in advance by the Environmental Conservation Committee, Customer Satisfaction/Product Liability Committee, and Safety, Hygiene and Disaster Prevention Meeting, and, when necessary, deliberated by the Executive Committee.
- Each plant shall acquire ISO 14001 accreditation and actively pursue measures that promote quality assurance and environmental protection.
(2) Response in the Event of Emergency
- In the event of an incident occurring due to a natural disaster or accident, in accordance with the Emergency Response System (the respective manuals for countermeasures again earthquakes or influenza and other infectious diseases), details of said incident shall be reported to the president and corporate auditors. At the same time, the director of the relevant department shall collect all relevant information, formulate response measures, clarify causes and determine countermeasures, submitting a report on these actions to the Executive Committee and the Board of Directors.
4．Structure to Ensure that Directors' Duties are Executed Efficiently
(1) Decision-Making Rules
- Board of Directors' meetings shall be held regularly once a month, with extraordinary meetings convened as and when necessary, as the foundation for ensuring the efficient execution of directors' duties. With the exception of the regular Board of Directors meetings, the written approval of each director shall be deemed to constitute a resolution of the Board of Directors, pursuant to regulatory requirements.
- Executive Committee meetings shall be held once a month. At each meeting the Executive Committee shall make decisions on fundamental and other important matters in an agile manner. Through these means, Lion shall strive to promote speedy operations and strengthen the Board of Directors' functions.
- Matters of importance relating to the management policies and strategies of the overall Group shall be deliberated on in advance by the Senior Executive Committee. Thereafter, recommendations shall be ratified by the Board of Directors.
- The autonomy of each company within the Group shall be respected; however, each Group company shall regularly report on its business activities to Lion and discuss important matters with Lion before taking action. In addition, matters of significance that may substantially impact the assets and earnings of Group companies are subject to approval by Lion's Board of Directors or Executive Committee.
(2) The Board of Directors
- The Board of Directors shall determine Companywide objectives and targets common to all directors and employees and promote understanding and awareness of and formulate management plans based on said objectives and targets.
- In order to make management plans more concrete, the Board of Directors shall establish business plans and set operating budgets on the basis of said management plans. Investments for marketing, research and development, capital expenditure and new businesses are also allocated on the basis of management plans.
- The Board of Directors shall determine the delegation of authority regarding important matters to organizations, executive general managers and directors of each division or department.
- The Board of Directors shall review monthly business results. In the event of a discrepancy between established targets and actual performance, the director responsible for each division shall provide an analysis of the discrepancy and recommend measures to reduce or eliminate negative factors to the Board of Directors. When necessary, targets may be revised.
(3) Business Operation Structure
- The directors responsible for each department shall establish efficient business operation structures for their departments, including concrete measures to be implemented.
- Monthly business results shall be collated for management accounting purposes in a timely fashion utilizing the Group's IT systems and submitted to the director responsible for the relevant department and the Board of Directors.
- Subject to item (2) d. above, each director responsible for a department shall implement improvements to increase the efficiency of the department's business operation structure as needed.
5．Matters Relating to Employees Assigned to Support Corporate Auditors and the Independence of Such Employees from Directors in the Case that Auditors Request Such Employees (Including Items Related to Ensuring the Effectiveness of Corporate Auditors’ Directions)
(1) At least one employee shall be allocated to the Auditing Office to support the duties and functions of the Board of Corporate Auditors.
(2) Employees allocated for this purpose to the Auditing Office are subject to the instructions of the Board of Corporate Auditors and not to the instructions of directors of the Board or the director of the Auditing Office.
(3) The aforementioned employees are independent of directors of the Board. The personnel evaluation, transfer and disciplining of these employees are determined after agreement by the Board of Corporate Auditors.
6．Structure for Reporting to Corporate Auditors by Directors and Employees and Other Matters Relating to Procedures for Reporting to Corporate Auditors as well as Structure for Ensuring that Such Reporting Will Not Result in Disadvantage to the Reporter
(1) Lion Group Directors and employees shall quickly report to the Board of Corporate Auditors any matters that may significantly impact the Group as well as any significant violations of legal statutes or the Articles of Incorporation. In addition, the directors shall report the following matters to the Board of Corporate Auditors.
- Significant breaches of the law and other important compliance matters.
- Emergencies relating to natural disasters or accidents as well as emergencies concerning legal requirements or corporate social responsibility.
- The implementation status of Group internal audits.
- The status and details of communications reported through the Group's internal reporting hotline.
- Matters determined by the Executive Committee and the Product Planning Executive Committee.
- Matters determined by directors and executive officers based on designated delegated authorities.
- The status of Group company activities and the status of Group company corporate auditor activities.
- The details and impact of any change in important accounting policies or standards adopted by the Company and its Group companies.
(2) The reporting methods for the matters described above in (1) a. through h. (the reporter, recipient, timing and other matters) are determined through deliberations involving directors and the corporate auditors.
(3) Notwithstanding item 6. (1) above, corporate auditors may request information from directors and employees as and when necessary.
(4) The Lion Group shall establish Behavioral Guidelines such that those who report to the corporate auditors shall not suffer any disadvantage as a result of such reporting and organizationally ensure that this is enforced.
7．Procedure for Pre-Payment and Reimbursement of Costs Arising in the Execution of Corporate Auditors’ Duties and Policy for Processing Other Costs or Liabilities Arising from the Execution of Such Duties
(1) Costs and liabilities necessary for the execution of corporate auditors’ duties shall be promptly paid or otherwise processed in accordance with the request of the corporate auditor.
(2) In addition, corporate auditors may receive the advice of outside experts as required to execute their duties. Related payments or other processing shall be handled in accordance with 7. (1), above.
8．Structure to Ensure Effective Auditing by Lion’s Corporate Auditors
(1) At the request of the Board of Corporate Auditors, the Board of Directors shall ensure that the Board of Corporate Auditors is able to appoint legal, accounting or taxation specialists to receive advice relating to audit activities.
(2) Corporate auditors may attend management meetings and discussions of the Company and Group companies as necessary.
(3) Corporate auditors may review and copy important information concerning Group companies as necessary.
(4) Corporate auditors may conduct individual interviews with the directors responsible for business execution and important employees regarding the status of the execution of their duties in accordance with audit plans formulated by the Board of Corporate Auditors.
(5) The Board of Corporate Auditors shall periodically convene meetings with the representative directors and accounting auditors to promote the exchange of information, opinions and views.
9．Structure to Ensure the Reliability and Appropriateness of Financial Reporting
(1) For the purpose of ensuring the reliability of the financial reporting of Lion, its subsidiaries and affiliated companies that forms the Group’s consolidated financial statements, the president shall develop, operate and evaluate internal control regarding financial reporting based on the “Internal Control Policies Regarding Financial Reporting” set forth by the Board of Directors. The president shall also report the status of internal control and submit an internal control report to the Board of Directors on a regular basis.
(2) The Auditing Office shall, through its internal auditing, understand and evaluate the status of the development and operation of the Company’s internal control system (including any problems and the status of improvements made to address problems) regarding the financial reporting and report its findings to the president and corporate auditors.
(3) As a part of their performance audits, corporate auditors shall audit the execution of directors’ duties related to the development and operation of internal control regarding financial reporting. In addition, corporate auditors shall audit the status of development and operation of internal control regarding financial reporting through audits of the appropriateness of the methods and results of accounting audits conducted by accounting auditors.
Development Status of the Internal Control System
Lion has established the Lion Group Charter for Corporate Behavior and Behavioral Guidelines, centered on the reinforcement of legal compliance and corporate ethics. To ensure strict compliance with the charter and guidelines on the part of all directors, corporate auditors and employees, the Group has established a Corporate Ethics Committee chaired by the director responsible for corporate ethics. The committee promotes concrete initiatives to ensure the penetration and entrenchment of corporate ethics awareness. In the event of a violation of the Lion Group Charter for Corporate Behavior or Behavioral Guidelines, the committee develops proposals to resolve the issue and prevent recurrences. The committee also works to strengthen the Group’s compliance systems, including the internal reporting systems. In addition, the Group maintains various rules and procedures to ensure the efficiency and effectiveness of operations, including standards for delegating decision-making authority to the president or the responsible executive, operating processes for each stage of product development, and product management systems that specify quality assurance procedures.
The corporate auditors and Auditing Office conduct regular audits to monitor whether these systems are functioning appropriately.
Regarding the timely disclosure of corporate information, Lion seeks out the opinions of the standing corporate auditors regarding the necessity of disclosure, endeavoring to ensure appropriate disclosure.
With regard to the development status of internal control related to financial reporting, Lion has established the “Internal Control Policies Regarding Financial Reporting” and standards for determining the scope of evaluation and targets of evaluations. Furthermore, the Group has assigned responsible staff to take charge of each operational process.
Operational Status of the Internal Control System
The Board of Directors examines the operation of the internal control system as necessary. An outline of the operational status for each year is given in that year’s annual business reporting.
II. Basic Approach to Eliminating Antisocial Forces and Status of Related Efforts
In accordance with the Lion Group Charter for Corporate Behavior, the Company shall maintain a stance of staunch opposition to any antisocial forces that pose a threat to public order and safety.
Status of Related Efforts
Having positioned its General Affairs Department as its office for handling issues relating to antisocial forces, Lion has appointed a person responsible for the prevention of undue claims against the Company and strives to coordinate efforts between each operational site of the Group as well as external institutions. To facilitate coordination with the police and relevant authorities, Lion participates in and shares information through specialized outside institutions, such as public-private partnerships for the prevention of undue claims.
To define and ensure compliance with procedures for handling antisocial forces, Lion has established an Undue Claim Prevention Manual.
The person responsible for the prevention of undue claims implements the necessary training at each operating site of the Group. The person responsible for the prevention of undue claims and the persons in charge of the prevention of undue claims at each operating site shall execute their duties in accordance with the Undue Claim Prevention Manual.
Established May 30, 2006
Amended June 29, 2006
Amended January 1, 2008
Amended February 7, 2008
Amended March 28, 2008
Amended January 1, 2009
Amended June 30, 2016